Primarius Blog - Tax effect of a tax deduction

Muriel Oliver
Case Study | 5 May 2021

Did you know that a tax deduction does not equal a tax refund or a tax reduction?  This is because the deduction comes off the income and then the person or entity's marginal tax rate is applied to the remaining income. 

Here is our simple case study to explain this:

Becky realises that she is expecting to make a profit of $125,000 in her investment company for the financial year ending 30 June 2021 (FY21) and is considering making a $25,000 contribution to super to use her concessional contributions cap (CCC). So, Becky calls her accountant Ben and asks him what the tax saving would be on this and receives this response:

  1. Tax bill pre super: At a 30% company tax rate her current profit of $125,000 equates to an estimated tax bill of $125,000 x 30% = $37,000
  2. Tax bill post super: If Becky makes the $25,000 tax-deductible contribution to super then her tax bill (assuming all other things are equal) would be $100,000 x 30% = $30,000
  3. Tax saving: Therefore, even though Becky receives a full tax deduction for her $25,000 super contribution, the net tax saving at her entity tax rate is only $7,000.

In other words, a tax deduction decreases your taxable income not your tax payable.

Note: entity and individual tax rates are topics for another discussion, however, the same basic principles apply, a tax deduction does not equal a tax saving.

Disclaimer: This information is general in nature. So, before acting on this or any other information, it is important to seek professional advice related directly to you and your circumstances.  Should you require our assistance, contact your Primarius Team leader, or email us at


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